Question

Bill currently uses his entire budget to purchase 5 cans of Pepsi and 3 hamburgers per week. The price of Pepsi is $1 per can, the price of a hamburger is $2, Bill's marginal utility from Pepsi is 4, and his marginal utility from hamburgers is 6. Bill could increase his utility by:

Answer 1

INCREASE the consumption of Pepsi and REDUCE the consumption of Hamburger

Step-by-step explanation:

Based on the information given we were told that Bill uses his whole budget to purchase the following :

5 cans of Pepsi

3 Hamburgers per week

And the following were the price:

Pepsi costs $1 per can

Hamburger cost $2

Bill marginal utility:

Pepsi 4

Hamburgers 6

Based on the above details this means that Bill could increase his utility by INCREASING Pepsi consumption and REDUCING hamburger consumption reason been that 5 cans of Pepsi costs $1 per can which will gives us income of $5 ($5×1) while 3 Hamburgers per week cost $2 which will give us income of $6 ($3×2) which typically means that the Hamburgers has more income that Pepsi.

Secondly since the marginal utility for Pepsi is 4 while that of Hamburgers is 6 which means that Hamburgers has higher MARGINAL UTILITY than that of Pepsi because the consumption of Hamburgers is higher than the consumption of Pepsi.

Therefore the best thing that Bill could do in order to increase his Pepsi utility is for Bill to increase Pepsi consumption and reduce hamburger consumption.